Are the super-wealthy ditching South Africa?

Many dollar millionaires seem to be moving themselves and their assets offshore. But there may be more to it, aside from South Africa’s shaky political and economic climate

If the news headlines are to be believed, South Africa’s high net worth individuals (HNWIs) are fleeing the country in their droves. This would be a concerning development, considering the financial benefits the superwealthy bring to the country’s economy and its tax table. Andrew Amoils, head of research at global wealth data capturer New World Wealth, estimates that 950 dollar millionaires left South Africa in 2015, up from 600 in 2014.

Who are they? The South Africa 2016 Wealth Report, published by New World Wealth, notes that there were 38,500 dollar millionaires – defined as HNWIs – living in South Africa in 2015. Those numbers have decreased by 10%, dropping from about 42,800 dollar millionaires in 2007. The personal wealth of the ultra rich also declined from a total of $168bn in 2007 to only $159bn in 2015.

DOLLAR MILLIONAIRES AND BILLIONAIRES

By the end of last year there were 2,030 multimillionaires – individuals with net assets of $10m or more – in South Africa, of which 620 were ultra high net worth individuals (UHNWIs) owning net assets of at least $30m. That figure includes seven billionaires, 91 centimillionaires (net assets worth $100m to $1bn) and 522 affluent millionaires (net assets worth $30m to $100m).

It’s worth noting that 2015 was a particularly bad year, with the number of HNWIs falling by 18%. At the end of 2015, cash and bonds held the lion’s share (35%) of HNWIs invested asset classes, but real estate formed 18% of their investment allocations.

Although the number of HNWIs decreased during the past eight years, their change in wealth wasn’t only due to South Africans migrating. A depreciating rand and falling equity markets were also responsible. There was a movement of funds offshore during this period, but the change was negligible – at the end of 2015, South African HNWIs held 21% of their wealth overseas, compared to 20% overseas in 2007. The majority keep their wealth in private banks and trusts in the UK’s Channel Islands, Switzerland, Luxembourg and Mauritius.

The question: if the super-wealthy invest offshore, does it mean they have lost faith in South Africa or are they merely making the world’s markets work for them? Some may simply be shifting their assets, and their homes, for a while. “We have period figures showing 4,800 have left since 2007. But these people have not necessarily immigrated officially; they are either working or living overseas,” says Amoils. “Some of them, in theory, could return.”

SOUTH AFRICA’S ULTRA WEALTHY

• Real estate and construction was the primary wealth source for 20% of South African dollar multimillionaires in 2015.

• Johannesburg was home to the largest portion (48%) of South Africa’s multimillionaires in 2015.
Next is Cape Town (18%), Durban (6%) and Pretoria (5%).

• Mauritius is the fastest-growing African destination where South African dollar millionaires choose to live.

Source: The South Africa 2016 Wealth Report, New World Wealth

ARE THEY FLEEING OR BUYING?

Rather than seeing HNWIs ﬂeeing the country, the company’s sales improved by as much as 30% at the top end of the market (properties at R10m or more) in recent months, says Andrew Golding, CEO of Pam Golding Properties.

RE/MAX Living sales associate Rainer Kloos agrees, saying despite concern surrounding the political situation, social stability and exchange rate risks, his recent business dealings in India and China indicated a keen interest for HNWIs to invest in the South African property market.

Seeﬀ Properties chairman Samuel Seeﬀ isn’t as sure. “A snap survey of our top-end areas certainly supports the notion that wealthy South Africans, especially those with young families, are looking to hedge their bets overseas. A number of our branches have reported an uptick in listings due to emigration,” he says. Seeﬀ puts this down to government policies around land ownership, a looming junk status downgrade and additional ﬁnancial burdens levied on certain sectors of the market, higher transfer duty and capital gains tax, making the top end of the market think twice about investing in property.

According to the New World Wealth 2015 Migration Survey, South Africa lost just more than 4,800 HNWIs to emigration since 2007. Of those who left, 42% moved to the UK, 14% to Australia, 10% to the US, 8% to Canada, 5% to Mauritius, 4% to New Zealand and 4% to Israel. The number of South African HNWIs living in and/or emigrating to Mauritius has increased by 160% since 2007 – in 2015 there were 3,200 HNWIs. This ﬁgure is expected to increase by 130% over the next 10 years – attractive tax rates, the lifestyle and a growing ﬁnancial services sector are some of the factors that appeal in Mauritius.

OVERSEAS SECOND HOMES

Money may not buy you love, but as a HNWI it does open doors to various countries around the world. For ease of travel through having the “right” passport, there are a number of destinations in the Caribbean such as Antigua, St Kitts and Nevis, and Grenada, which oﬀer investment for citizenship programmes. For a European passport, choices include the UK, Portugal, Greece and Cyprus, all of which oﬀer similar schemes.

Research by New World Wealth also showed that 38% of South Africa’s dollar millionaires owned second overseas homes at the end of 2015. Places where they tend to buy include London, New York, Geneva, Paris, Sydney, Melbourne and Mauritius.

The world’s wealthy are attracted to particular cities to live in and invest, educate children and grow their businesses. The top destinations according to the Knight Frank Wealth Report 2016 are London and New York, followed by Singapore, Hong Kong and Dubai. Property in these regions doesn’t come cheaply. Knight Frank’s Prime Residential Index in 2015 explored what $1m can buy in square metres of luxury property globally. In London your hard-earned money will buy 22m2 of property, in New York it fetches 27m2 and in Hong Kong, it’s 20m2. In Monaco $1m will buy only 17m2 of real estate.

Foreign property ownership has always held wide appeal for the wealthy and South Africa has some of the world’s most spectacular scenery combined with a weaker rand. New World Wealth identiﬁed the hot spots for wealthy foreign buyers in South Africa. Patterns were signiﬁcantly lower in 2015 compared to 2014, thanks to stricter visa requirements for foreigners visiting South Africa. Yet despite this decline, wealthy foreigners continued to buy South African properties, particularly at the top end.

MORE AFRICAN BUYERS

The type of foreign property buyer has also changed between 2007 and 2015. Signiﬁcantly, wealthy African citizens made up the largest share of foreign property buyers in 2015, increasing considerably since 2007. “Most of them came from Nigeria, Angola and Ghana,” says Amoils. “We expect more than 10,000 African millionaires to move to South Africa over the next decade.”

Africans are purchasing local property for a variety of reasons, says Golding. “Some are seeking investment properties or personal residences that provide access to an upmarket lifestyle. More traditionally, some HNWIs are purchasing luxury seaside residential properties or other ‘lifestyle properties’. These not only provide a holiday destination or a second or third home, but, given the weak rand, this represents an excellent means of diversifying their property portfolios and securing a sound long-term investment,” he says.

Gauteng and Cape Town have long been an international drawcard for property, and business prospects exist for those who show entrepreneurial savvy. Some of South Africa’s ultra wealthy will shift their assets on a permanent basis in 2016 – let’s view it as an opportunity to attract new wealth.